Ken Griffin crowned king of the hedgies

One thing to start: I’m Brooke Masters, the FT’s US financial editor, filling in again for Harriet Agnew while she is on sabbatical for the month of January.

A new king of the hedge fund industry

Ken Griffin’s Citadel has officially displaced Ray Dalio’s Bridgewater as the most successful hedge fund of all time according to LCH Investments, whose closely watched league table of lifetime dollar gains made by hedge funds for investors is out today.

The change at the top comes after a year of extremes for the sector, write Laurence Fletcher and Eric Platt. Many hedge fund managers found they were either perfectly placed for or horribly exposed to the market upheaval triggered by central banks rapidly hiking interest rates to battle soaring inflation.

Undoubtedly the biggest winner was Citadel. While multi-manager funds, which employ tens of even hundreds of teams of traders and tightly control risk, have been one of the strongest areas of growth in the hedge fund industry in recent years, Citadel’s punchy bets helped it pull well ahead of its major rivals with a staggering 38.1 per cent return from its main Wellington fund last year.

That helped drive $16bn of gains, the biggest annual hedge fund gain of all time. It even surpassed the so-called “greatest trade ever”, John Paulson’s 2007 bet against subprime lending.

On the other side, Chase Coleman’s Tiger Global had such a bad 2022 that it dropped out of LCH’s top 20, just two years after it joined that elite list. The tech-focused Tiger cub made $10.4bn of profits from its bullish bets in 2020, which propelled the firm into 14th place that year.

Tiger’s recent problems as tech stocks have tumbled have been well documented, but LCH’s figures reveal a dollar loss of $21.9bn, which ranks as the biggest annual loss in hedge fund history.

Passive funds still rule

For years we’ve been told that actively managed funds would get their day in the sun during a market downturn. When indices turned down, investors would see the wisdom of putting their cash with stock and bond pickers who could separate the wheat from the chaff.

Well, 2022 put that theory to the test, and guess what. Passive funds comprehensively smashed active managers when it came to gathering new assets, according to EPFR data, writes Robin Wigglesworth.

Furthermore, investors who went with the active managers were not necessarily rewarded. Only 48.7 per cent of US equity funds beat their indices, and only 43.2 per cent of global ones, according to Morningstar data. Active bond funds did even worse: only 41.2 per cent of classic bond funds (“intermediate core” in Morningstar’s system) surpassed their benchmarks, and measly 33.8 per cent of high-yield bond funds.

Chart of the week

There’s good news for folks who get paid in euros, as the currency has regained ground since falling below parity with the US dollar last September, writes George Steer. After rising about 13 per cent over the past three and a half months, the euro is now close to $1.08.

The currency has strengthened amid cooling energy prices, receding fears of a deep recession later this year and an increasingly hawkish European Central Bank. The euro has also been aided by a broader retreat for the dollar, which is down roughly a tenth against a basket of six peers since touching a 20-year high in September.

10 unmissable stories this week

KKR limited withdrawals from a property fund after a surge in redemption requests from clients. Like Blackstone Group’s much larger Breit fund, the $1.6bn KKR Real Estate Select Trust fund refused to accommodate all the investors who wanted to run for the exits. KKR disclosed in a filing that it fulfilled just 62 per cent of investors’ requests for the quarter ended December 1.

Bruno Crastes, the star fund manager who recently earned a five-year investment ban from French regulators, told clients that he still plans to play an active role at H2O Asset Management. This comes after the Autorité des Marchés Financiers levied a record €75mn fine against H2O for “serious” rule breaches related to the €11.6bn asset manager’s extensive illiquid investments linked to the controversial financier Lars Windhorst.

Stocks are in for “a long period of time with very, very low returns,” according to the chief executive of Norway’s $1.3tn oil fund. In an interview in Davos, Nicolai Tangen warned US inflation could reaccelerate and that the financial system had not yet seen the “secondary effects” of the $30tn of wealth destroyed in last year’s market rout.

Point72 has finally won approval to operate directly in the UK, a decade after US trader Steve Cohen’s previous firm pleaded guilty to insider trading and paid a record $1.8bn in fines. Formerly a family office, Point72 opened to outside investors in 2018 and manages $26.7bn in assets. It won regulatory authorisation from the Financial Conduct Authority last week.

Just in time for Chinese premier Liu He’s trip to Davos, the country’s top securities watchdog approved JPMorgan taking full ownership of its Chinese mutual fund venture, and allowed the Hong Kong unit of Standard Chartered to set up a fully owned securities unit on the mainland.

South Korean activist fund Flashlight Capital Partners is pressing KT&G, the country’s largest tobacco and ginseng producer, to return about Won2.3tn ($1.86bn) to shareholders this year. Run by a former Carlyle Group executive, the fund wants the company to triple its dividend payout, appoint two well-known Korean business leaders as outside directors and spin off its ginseng unit into a separate listing.

The next domino in the unfolding crypto financial crisis toppled, as broker Genesis put its lending unit into bankruptcy. The lending shop owned by Barry Silbert‘s Connecticut-based crypto conglomerate DCG has been stricken since the collapse of FTX in November. Genesis was sued by the SEC last week over a lending programme the regulators says was not properly registered as a securities offering.

Fallout from the crypto meltdown has also reached the family office of New York’s wealthy Belfer family, which held shares in FTX. The oil dynasty, whose name adorns a gallery at the Metropolitan Museum of Art and a centre at Harvard University, has a notable investment record, having been a major shareholder at Enron and a client of Bernard Madoff.

London asset managers and investment advisers are at risk of costly lawsuits over the liability-driven investment strategies they offered to pension funds. After the products nearly blew up the UK government bond market last autumn, lawyers predict a wave of litigation.

Fund managers have cut their exposure to Wall Street to the lowest level in 17 years, preferring opportunities in Europe and emerging markets to backing American equities.

And finally

With Oscar nominations due to be released on Tuesday, now is a great time to catch up on the hot films. The Academy has already said that the voting turnout for the awards is the largest in its 95-year history. I loved Everything Everywhere All at Once, FT film critic Danny Leigh sings the praises of Tár and its star Cate Blanchett, and Steven Spielberg’s The Fabelmans is currently the odds-on favourite for best picture.

Thanks for reading. Laurence Fletcher, the FT’s hedge fund correspondent will be back with you next week.